US Jobs Report to Provide Fundamental Focus After Brexit

The NFP Report is expected to Erase Last Month’s Disappointment

Due to the 4th of July holiday the ADP payrolls report and the unemployment claims were released on the same day. Both posted strong numbers and while not enough to convince investors that the Fed will do anything but wait, they did offer some hope of U.S. employment remaining strong. The ADP payrolls beat expectations with a 172,000 job gains, in range of last month’s data but above the forecast of 158,000 after the disappointing U.S. non farm payrolls (NFP) report of only 38,000 added toe the U.S. last month. Unemployment claims came in at 254,000

The U.S. Federal Reserve minutes released yesterday showed a divided Fed membership even before the Brexit risk, became harsh reality. The aftermath of the British vote has reduced the probability of a U.S. interest rate hike in 2016 and has validated the caution shown by the U.S. central bank in their June meeting.

Employment remains the U.S. economy’s strongest pillar despite the stumble last month. The U.S. non farm payrolls (NFP) only added 38,000 jobs and is expected to add 174,000 on Friday. The NFP report will be published on Friday, July 8 at 8:30 am EDT.

The EUR/USD lost 0.347 percent in the last 24 hours. The pair is trading at 1.1057 after strong employment data has boosted the USD against majors. In the week following the Brexit outcome there was little data for the market to trade on, the first week of July is brining much needed fundamental indicators and ending the week with the biggest one as investors are looking at the U.S. as a safe haven and a growth destination while chaos continues in the U.K.

West Texas Oil dropped 4.65 percent in the last 24 hours. The price of energy is trading at $44.94 after the U.S. crude inventories showed a 2.2 million barrel drawdown as forecasted. The lack of higher demand for energy during the U.S. driving season and lack of output disruptions globally put the price of the black stuff under pressure as producers keep pumping near record highs.

The U.S. Federal Reserve is not likely to raise rates anytime soon after the Brexit referendum, but traders will keep their focus on the upcoming jobs report for signs of economic strength from the U.S. economy. Wage growth will be scrutinized alongside the headline jobs number as the Fed has mentioned time and time again it is waiting for positive signs of higher wages before it decides to hike rates. The USD remains a favoured destination by investors as Brexit anxiety and other concerns like Italian bank have risen with the European Central Bank (ECB) not making any monetary policy commitments. The Fed can afford to be patient and will do so as the ECB and the Bank of Japan (BOJ) will be forced into action as their economies warrant it.

Market events to watch this week:

Friday, July 8
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza